• Monday, April 15, 2024
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BusinessDay

The Big Winner From China’s Foreign-Aid Frenzy: China

When Ghana sought to build a hydroelectric dam in the early 2000s, it failed to get World Bank backing. Then China stepped forward.

 

The Bui Dam was built through China’s brand of foreign aid: roughly half of the $600 million cost came as aid-like financing on favorable terms; the other half, commercial loans to be repaid with the proceeds from cocoa production.

 

China’s blurring of charity and business was examined in a new study from AidData, a research center based at the College of William and Mary in Virginia, which tallied 4,400 Chinese foreign-development projects from 2000 to 2014. AidData estimates one-fifth of the $362.1 billion took the form of Chinese government grants or other aid. Another one-fifth was too murky to determine whether it was aid or business. The remaining transactions were mostly commercial in nature.

 

China’s hybrid development model is playing a growing role, as Beijing begins its enormous “Belt and Road” infrastructure push across Asia, the Middle East and Africa. At $1 trillion, its projected cost is more than seven times that of America’s Marshall Plan for Europe’s post-World War II reconstruction, in today’s dollars.

Beijing’s ambition has funded pricey projects that might otherwise draw few backers, such as the Gwadar port in Pakistan and a data center in Djibouti, home to China’s first overseas naval base. But China has drawn criticism for financing authoritarian regimes and countries with unsustainable debt, such as Venezuela.

 

China has cast Belt and Road as a humanitarian effort, as well as a means to forge trade routes and strategic alliances. In May, China said it would spend 60 billion yuan ($9.1 billion) on assistance to Belt and Road countries in the next three years, including on emergency food aid and poverty alleviation.

 

The U.S. and other Organization for Economic Cooperation and Development countries define foreign aid, or “official development assistance,” as transactions that are at least 25% grant.

But for China, development assistance generally also lands business for its companies—a dual role that Beijing views as a win-win rather than a conflict, says Evan Ellis, a U.S. Army War College professor who studies China’s engagement in South America.

 

“The Chinese don’t just give loans,” he said. “They are almost all tied to using Chinese companies as subcontractors.”

 

China’s commerce ministry and the Export-Import Bank of China didn’t immediately reply to requests for comment. China has said its foreign assistance is based on mutual benefit and noninterference in the internal affairs of the recipient countries.

 

The U.S. and other member countries of the Organization for Economic Cooperation and Development, a Paris-based research body, agreed in 1978 to restrict the practice of requiring aid recipients to purchase goods and services, and to limit how aid can be mixed with commercial financing, said Brad Parks, AidData’s executive director. China isn’t a member of the OECD, so isn’t bound by the agreement.

“This practice has raised serious alarm among countries that do not blend their development finance and trade finance,” said Mr. Parks.

 

The U.S. Export-Import Bank warned in its annual competitiveness report this summer that the agreement may suffer from China’s use of “mixed credits,” which combine regular export credits with aid or aid-like loans.

 

The result is financing packages that countries adhering to the OECD agreement can’t match, the report said.

 

Deborah Brautigam, director of the China Africa Research Initiative at the Johns Hopkins University School of Advanced International Studies, said the U.S. had used foreign aid to boost exports for many years before unlinking the two areas.

“We know these tricks,” said Ms. Brautigam.

“These are all the same tricks that we had used.”

 

Defenders of China’s development model say countries gain valuable infrastructure that otherwise might not have been funded.

 

When Ghana sought to build its first dam in the 1960s, the U.S. and World Bank mobilized for the project, fearing in those Cold War days that the mineral-rich area would fall under Soviet sway. But by the early 2000s, public opinion in the West had turned against dam-building, making the World Bank reluctant to take on new projects like Ghana’s second dam, said Julian Kirchherr, an assistant professor in sustainable development at Utrecht University in the Netherlands.

 

China’s Sinohydro Corp. completed Ghana’s Bui Dam in 2013. In August, the Ghana Cocoa Board told the country’s parliament it was in financial distress due to obligations that including servicing the Bui Dam loan.